BEHIND A CUP OF COFFEE:

1
BEHIND A CUP OF COFFEE

• HOW FAMOUS BRANDS COVER THEMESELVES

Creti Carolina, Francesconi Elena,
Martiriggiano Sara, Saccenti Elisa
Risk Management Derivatives, A.Y 2013-2014
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Table Of Content

• The coffee market
• Starbucks
• Dunkin Donuts
• Green Mountain
• Conclusion

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THE COFFEE MARKET

• SOME NUMBERS
• The second most traded commodity after oil
• Global production of US 15.4 billion in 2009/10
• 4 billion cups consumed every day around the
  World (Americans 400 million cups)

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MAYOR PRODUCERS

• TOP 5
• -BRAZIL 33
• -VIETNAM 15
• -INDONESIA 6.3
• COLOMBIA 5.9
• ETHIOPIA 5.0
• 
  65.6

rCoffea canephoramCoffea canephora and Coffea
arabicaaCoffea arabica
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A Liberalized Market

• The coffee market is for its nature unstable, and
  the price is sensitive to the supply/ demand, to
  the speculation on the financial market, and to
  political questions
• The volatility is increased after the stop of the
  International Coffee Agreement in 1989. This
  system provided that, when the prices fell below
  a certain level, the producer country could not
  enter into the same market over a predefined
  quotas.

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A Liberalized Market
231 March 2011
109.24 Dec. 2013
Worst Level

• 2007 achieved the same level as 1989
• peak in 2011/2012
• Oct 2013 lowest level since March 2009,

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ITS QUOTES- Arabica vs Robusta
CONTRACT SPECIFICATIONS ARABICA ROBUSTA
Market CME London Stock Exchange
Delivery Months March, May, July, September, and December January, March, May, July, September, and November
Contract Size 37,500 pounds Ten tonnes
Price Quotation U.S Dollar per pounds U.S dollar per tonne
Mimimun Fluctuation 0.0005 per pounds 1 per tonne
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A COMPETITIVE MARKET

• There are many realities widespread all over the
  World

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OUR ANALYSIS
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Company Overview
1
Starbucks
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Core Business

• purchase and roast high-quality whole bean
  coffees for sale
• sell teas and other beverages, food items and
  beverage-related accessories and equipment,
  primarily through company operated retail stores
  licensed retail stores
• in addition to the flagship Starbucks brand the
  portfolio also includes goods and services
  offered under other brands Teavana, Tazo,
  Seattles Best Coffee, Starbucks VIA, Starbucks
  Refreshers, Evolution Fresh, La Boulange and
  Verismo.

dicembre 2013
12
Starbucks
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The mission of the company

• To inspire and nurture the human spirit one
  person, one cup and one neighborhood at time.

The objective to maintain Starbucks standing as
one of the most recognized and respected brands
in the world
Starbucks
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The mission of the company
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Global Expansion
Today it is in 62 countries around the world and
it has about 18000 stores world-wide.
Starbucks
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Price Stock
Starbucks Corporations common stock is listed on
NASDAQ, under the trading symbol SBUX. The
price of the stock is around 80 us
Starbucks
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Financial Statement
2
Starbucks
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Consolidated Balance Sheets

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Consolidated Statement Of Comprehensive Income
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Consolidated Statement Of Cash Flows
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Risk Factors Managements
3
Starbucks
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General Risk Factors 1/3
dicembre 2013
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Starbucks
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General Risk Factors 2/3
dicembre 2013
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Starbucks
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Growth targets

• The performances of the international operations
  may be affected by
• foreign currency exchange rate fluctuations, or
  requirements to transact in specific currencies
• changes or uncertainties in economic, legal,
  regulatory, social and political conditions in
  their markets
• interpretation and application of laws and
  regulations
• restrictive actions of foreign or US governmental
  authorities affecting trade and foreign
  investment
• import or other business licensing requirements
• the enforceability of intellectual property and
  contract rights
• limitations on the repatriation of funds and
  foreign currency exchange restrictions due to
  current or new US and international regulations
• in developing economies, the growth rate in the
  portion of the population achieving targeted
  levels of disposable income may not be as fast as
  they forecast
• difficulty in staffing, developing and managing
  foreign operations and supply chain logistics,
  including ensuring the consistency of product
  quality and service, due to distance, language
  and cultural differences, as well as challenges
  in recruiting and retaining high quality
  employees in local markets
• local laws that make it more expensive and
  complex to negotiate with, retain or terminate
  employees
• delays in store openings for reasons beyond their
  control, competition with locally relevant
  competitors or a lack of desirable real estate
  locations available for lease at reasonable
  rates
• disruption in energy supplies affecting their
  markets.

dicembre 2013
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Starbucks
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General Risk Factors 3/3
dicembre 2013
27
Starbucks
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Financial Condition

• Financial condition and results of operations are
  sensitive to, and may be adversely affected by, a
  number of factors, many of which are largely
  outside their control
• declines in general consumer demand for specialty
  coffee products
• increases in labor costs such as increased health
  care costs, general market wage levels and
  workers' compensation insurance costs
• adverse outcomes of current or future litigation
• especially in larger or fast growing markets,
  labor discord, war, terrorism, political
  instability, boycotts, social unrest, and natural
  disasters, including health pandemics that lead
  to avoidance of public places or restrictions on
  public gatherings such as in their stores.

dicembre 2013
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Starbucks
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Hedging Philosophy
Starbuck manages his exposure to various
market-based risks according to a market price
risk management policy.
The market price risk management policy governs
how hedging instruments may be used to mitigate
risk
Risk limits are set annually and prohibit
speculative trading activity. Besides, Starbuck
also monitors and limits the amount of associated
counterparty credit risk.
dicembre 2013
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Starbucks
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Commodity prices, availability and General Risk
Conditions
Commodity price risk represents Starbucks primary
market risk, generated by the purchases of green
coffee and dairy products, among other items.
Risk arises from the price volatility of green
coffee.
dicembre 2013
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Starbucks
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Financial Risk Management 1/2
dicembre 2013
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Financial Risk Management 2/2
dicembre 2013
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Derivative Financial Instruments 1/4
dicembre 2013
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Starbucks
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Derivative Financial Instruments 2/4
dicembre 2013
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Starbucks
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Derivative Financial Instruments 3/4
The following table presents the pretax effect of
derivative contracts designated as hedging
instruments on earnings and other comprehensive
income ("OCI") for fiscal years ending (in
millions)
dicembre 2013
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Starbucks
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Derivative Financial Instruments 4/4
The following table presents the pretax effect of
derivative contracts not designated as hedging
instruments on earnings for fiscal years ending
(in millions)
Notional amounts of outstanding derivative
contracts (in millions)
dicembre 2013
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Starbucks
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Company Overview
1
DUNKIN' BRANDS GROUP, INC
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Core Business

• One of the world's leading franchisors of quick
  service restaurants (QSRs) serving hot and cold
  coffee and baked goods, as well as hard serve ice
  cream
• Operate business in four segments Dunkin' Donuts
  U.S., Dunkin' Donuts International,
  Baskin-Robbins International and Baskin-Robbins
  U.S.

dicembre 2013
DUNKIN' BRANDS GROUP, INC
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The mission of the company

• At Dunkin' Brands, community is the heart of our
  business. That's why we established The Dunkin'
  Donuts Baskin-Robbins Community Foundation.
  Working in partnership with Dunkin' Donuts and
  Baskin-Robbins franchisees across the country,
  the Foundation serves the basic needs of our
  communities through food for the hungry, safety
  and children's health. It's what we do every day.

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Global Expansion- Dunkin' Donuts -
3,100 stores in 30 countries outside of the U.S.
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Global Expansion- Baskin-Robbins -
7,000 store locations in over 50 countries
outside the US..
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Price Stock
Starbucks Corporations common stock is listed on
NASDAQ, under the trading symbol SBUX. The
price of the stock is around 80 us
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Financial Statement
2
DUNKIN' BRANDS GROUP, INC
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Segment profit
8,84
4,77
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Consolidated Balance Sheets
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Consolidated Statements of Operation
48
Consolidated Statements of Comprehensive Income
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Consolidated Statements of Cash Flows
50
Consolidated Statements of Stockholders Equity
(Deficit)
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Risk Factors Managements
3
DUNKIN' BRANDS GROUP, INC
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General Risk Factors 1/2
dicembre 2013
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Starbucks
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General Risk Factors 2/2
dicembre 2013
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Starbucks
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Risks related to the common stock
dicembre 2013
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DUNKIN' BRANDS GROUP, INC
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Market risks
Hedging Philosophy

• The Company uses derivative instruments to
  mitigate the impact of these changes.
• The Company does not use derivatives with a level
  of complexity or with a risk higher than the
  exposures to be hedged and does not hold or issue
  derivatives for trading purposes.
• The Company's risk management objective and
  strategy with respect to the interest rate swaps
  is to limit the Company's exposure to increased
  interest rates on its variable rate debt by
  reducing the potential variability in cash flow
  requirements relating to interest payments on a
  portion of its outstanding debt.
• The Company documents its risk management
  objective and strategy for undertaking hedging
  transactions, as well as all relationships
  between hedging instruments and hedged items.

dicembre 2013
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Derivative instruments and hedging
transactions1/3
The table below summarizes the effects of
derivative instruments on the consolidated
statements of operations and comprehensive income
for fiscal year 2012
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Derivative instruments and hedging
transactions2/3
dicembre 2013
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Derivative instruments and hedging
transactions3/3
dicembre 2013
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Green Mountain Coffee
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Company Overview
1
Green Mountain Coffee
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Business 1/3

• Green Mountain Coffee Roasters, Inc. is the
  American leader in the coffee and
• coffeemaker businesses
• Keurig, asingle-cup brewing systems producer
  acquired by GMCR, spread the use of K-Cups
  (plastic container with a coffee filter inside)
• It offers whole bean, ground coffee and
  beverages in packs (tea, cocoa, fruit)

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Business 2/3

• 2012 top four best-selling coffeemakers for the
• volume in USA
• Production and distribution divisions USA and
  Canada
• Main strategies
• increasing and managing programs in order to
  spread Keurig Single Cup Brewer in North
  America
• to be the leader in coffee field offering a
  high-quality and an innovative Single Cup
  Brewing technology
• Competitive advantage quality, convenience,
  variety
• We create the ultimate beverage experience in
  every life we touch from tree to cuptransforming
  the way the world understands business

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Business 3/3

• Social responsability
• Local communities partnership (supply chain),
  protecting the environment, sustainable products,
  Fair Trade certified sources (Rain Forest
  Alliance Certified farms)
• Brewing A Better World Foundation
• supports charitable organizations (help to local
  communities)
• Employees
• 5800 full-time, part-time and seasonale
• Competitors coffee segment producers and
  coffeemakers sellers
• Constant innovation and high quality brings to
  superior cup of coffee

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Financial Statement
2
Green Mountain Coffee
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Analysis of financial condition 1/4

• Partnership with famous brands Starbucks,
  Lavazza, Millstone, Twining of London (these
  brands are used with permission from each owner
  who has the property)
• Last years huge demand of single cup specialty
  coffee
• Different locations home, office, professional
  locations, restaurants, hospitality and specialty
  coffee shops
• Increase the business expanding consumer
  awarness/choice and new regions
• New launches
• Keurig Rivo Cappuccino and Latte System and Rivo
  pack espresso blend varieties in partnership with
  Lavazza.
• Wellness Brewed collection which includes
  coffees, teas and Vitamin Burst fruit brew
  beverages (antioxidant vitamins)

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Analysis of financial conditions 2/4

• 2012
• Net sales of 3,859.2 million Growth of
  36 over 2011
• Gross profit 1,269.4 million
• 477.8 million in cash from operations
• Innovation brings a more complicated product
• its performance in sales returns rates to
  possibly fluctuate

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Analysis of financial conditions 3/4

• Operating segments
• Specialty Coffee unit (SCBU)
• Keurig business unit (KBU)
• Canadian business unit (CBU)

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Analysis of financial conditions 4/4

• Non-GAAP method
• Exclude transaction cost related to GMCR
  acquisitions
• Greater transparency for investor
• Better evalutation and trends of financial and
  business

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Financial data
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Cash requirements of outstanding long-term debt,
future lease payments and purchase commitments
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Financial Statements and Supplementary Data
Consolidated Balance Sheets (Dollars in Thousand)
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Consolidated Statements of Comprehensive Income
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Consolidated Statements of Cash Flows
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Risk Factors Managements
3
Green Mountain Coffee
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Risk factors
Risks for any company changes in industry and
market conditions, political condition,
competition and currency exchange rate

• Risk due to internal operation
• Revenues depends on the Keurig's sales
• High competition can effect profitability
• Negative impact on company's reputation
• Product recall/sales returns
• Failure in business relationships
• Wrong forcast on demand
• Law and regulation
• Currency exchange risk
• Seasonality of many products

• Risk due to the industry
• Increase of coffee beans price
• Changes in global economic conditions (or US
  economy)
• Investigations by Government

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Quantitative and Qualitative Disclosures about
Market Risk 1/4
Interest rate risk (cash flows rated)
2012 238 million of outstanding debt
obligations subject to variable interest
rates increase by 100 basis points Additional
interest expense of 2.4 million annually
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Quantitative and Qualitative Disclosures about
Market Risk 2/4
Commodity price risk

• Fluctuations causes
• Weather
• Political
• Economic conditions in coffee-producing
  countries
• Gross profit margins could be significantly
  impacted by changes in the commodity
• price of coffee.
• GMCR fixes coffee price contracts 3/9 months
  before the delivery in order to
• adjust its sales prices to the market place.
• September 2012 this company held outstanding
  futures contracts to cover 3.2 M of coffee

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Quantitative and Qualitative Disclosures about
Market Risk 3/4
Foreign currency exchange rate risk

• Risk related especially with CBU
• Brewers from countries outside USA
• Majority of transactions are made in Canadian
  Dollar (positively affected when the United
  States dollar strengthens against the Canadian
  dollar)
• ITEM 8 GMCR hedges foreign currency exposure of
  a portion of our assets and liabilities
  denominated in Canadian dollars (at fair value)

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Quantitative and Qualitative Disclosures about
Market Risk 4/4
Foreign currency exchange rate risk

• September 2012 GMCR held 4-year cross-currency
  swap of Canadian Dollar
• 140 million that was not designated as a hedging
  instrument for accounting
• purposes principal payments on the
  cross-currency swap are settled on an
• annual basis to match the repayments on the note
  receivable and the swap is
• adjusted to fair value each period
• GMCR uses foreign currency forward contracts to
  hedge certain capital purchase
• Liabilities for production (minimizing cost risk
  of market fluctuations).
• Any outstanding foreign currency forward
  contracts in September 2012

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Fair value of the Companys derivatives included
on the Unaudited Consolidated Balance Sheets
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CONCLUSION

• Derivative instruments are not common in this
  type of market
• Common risks among the 3 companies
• -Interest Rate Risk
• -Commodity Price Risk
• -Foreign Exchange Risk
• Instrument used Contract with the supplier
  Interest Rate Swap Foreign Currency Forward,
  Cross Currency Swap

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Thanks for your attention!!!
Any questions??
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REFERENCES
Annual report Starbucks, http//www.starbucks.com/
Annual report Dunkin Donuts,
http//www.dunkindonuts.com/dunkindonuts/en.html
https//www.baskinrobbins.com/content/baskinrobbin
s/en.html Annual report Green Mountain,
http//www.greenmountaincoffee.com/ International
Coffee Organization http//www.ico.org/ http//
en.wikipedia.org/wiki/Economics_of_coffee http//
www.ibtimes.com/coffee-beans-market-watch-2014-143
6836 http//blackgoldmovie.com/economics-of-coffe
e http//www.coffeeresearch.org/market/marketintr
o.htm http//www.iandmsmith.com/index.php?qcon,2
9,20Coffee_Market_Report http//www.cmegroup.com
/trading/agricultural/softs/coffee.html https//g
lobalderivatives.nyx.com/products/commodities-futu
res/RC-DLON